Bob transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is Bob's gain recognized on the transfer?

Question

Quizplus · Accepted Answer

Under Sec. 351, no gain or loss is recognized on the transfer of property to a corporation in exchange for stock if the transfer is made solely in exchange for stock and the transferor is in control of the corporation immediately after the transfer.
In this case, Bob transferred assets with an FMV of $100,000 (basis $60,000) and $70,000 of liabilities to the corporation in exchange for 100% of the corporation's stock with a FMV of $30,000. The corporation assumed the $70,000 mortgage. 
Bob's recognized gain is calculated as follows:
Realized Gain = FMV of Property Transferred - Adjusted Basis of Property Transferred
= $100,000 - $60,000
= $40,000
However, since the transfer qualifies under Sec. 351, no gain is recognized. Therefore, the answer is B, $10,000 ($40,000 realized gain minus $30,000 FMV of the stock received).

Bob Transfers Assets with a $100,000 FMV (Basis $60,000)and $70,000